Indian Bank HDFC Plans
To Merge With Centurion

By

Romit Guha

Updated Feb. 25, 2008 12:01 am ET

BANGALORE, India -- The boards of
HDFC Bank Ltd.
, India's second-largest private bank by assets, and midsize Centurion Bank of Punjab Ltd. plan to merge in what is poised to be the biggest financial-sector deal in India's banking history.

The boards of both banks will meet today to consider a share-swap ratio and again on Thursday to decide on the merger details and related issues.

"The two boards have resolved to pursue the merger subject to satisfactory due diligence, a fair share-swap ratio and all the requisite statutory, regulatory and corporate approvals," a statement said, without giving a value of the deal.

The merged entity will close the gap on
ICICI Bank Ltd.
, India's largest private-sector lender, with both still trailing state-run State Bank of India, India's largest in terms of assets and branch network.

As of Dec. 31, HDFC Bank had 754 branches, spread mainly in the western, central and eastern parts of India, while Centurion had 394 branches, mainly in north and south India.

But ICICI is still far ahead in terms of total assets. It has 4.25 trillion rupees ($106.2 billion) in assets, compared with HDFC Bank's 1.3 trillion rupees and Centurion's 250 billion rupees.

Deven Choksey,
managing director at Mumbai-based brokerage K.R. Choksey Securities, expects a share-swap ratio in which a shareholder holding 25 to 27 Centurion shares will get one share of HDFC Bank, "taking into account a 120 billion rupee enterprise valuation at 64 rupees per share" for Centurion.

Centurion's current market capitalization is about 100 billion rupees, compared with the much-larger 520 billion rupees for HDFC Bank. ICICI has a market capitalization of 1.22 trillion rupees.

On the Bombay Stock Exchange Friday, Centurion closed down 1.1% at 56.40 rupees, while HDFC Bank ended down 4.4% at 1,474.95 rupees.

Analysts said the deal will benefit both banks. "HDFC will add to its branch network in the northern and southern parts of India, where it doesn't have too much of a presence, while [Centurion] will benefit from HDFC's operations, which are much bigger and better," said
Dinesh Shukla,
an analyst at Mumbai-based brokerage Religare Securities.

Another Mumbai-based analyst said that though the deal will benefit HDFC Bank in the long term, "its valuations could suffer temporarily, as it's buying a bank which is operationally much weaker than itself."

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